9.23.14 - U.S. Stock Market Facing More Threats Than Ever
Gold prices end higher on short covering and safe-haven demand. U.S. stocks fall for third straight session on weak Eurozone data and escalating war in the Middle East. Gold last traded at $1,222 an ounce. Silver at $17.71 an ounce.
It wasn't a surprise, but it nevertheless served as a small shock to the financial system; the US, along with a few Arab allies, began conducting an air campaign against ISIS and other terrorists in Syria overnight.
This resulted in sharply lower stock markets in the US and Europe and a rebound in gold.
There is a general fear in the financial world that the new US-led air campaign is opening a new, far more complicated front in the battle against the militants.
European stocks were also hurt by a report that showed the economy of the 18-country eurozone is failing to find any renewed momentum. In its monthly survey, financial information company Markit said its eurozone purchasing managers' index, a closely watched gauge of business activity, had fallen to a nine-month low in September.
The stock market faces more threats than ever now and many key players have moved to the sidelines.
Market skeptics warned that the hype over last week's much-heralded Alibaba IPO could be telegraphing a stock market top. The weak stock market action since early Friday does little to torpedo that bearish prediction.
Small stocks won the Wall Street performance derby last year, with the Russell 2000 small-cap index gaining 37% vs. a gain of 29.6% for the large-company S&P 500. But the small fries are this year’s biggest laggards and, as a result, the market has lost its market leader.
“It has felt to us for some time that we are entering a correction or bear market,” says Patrick Adams, a money manager at Choice Investment Management. “Smaller companies have performed poorly this year.”
But what worries Adams is the weakness below the surface of the major indexes. The losses of individual stocks are adding up, despite the fact that the broad S&P 500 remains near record highs. In other words, fewer stocks are doing well.
“The market is getting narrow and losing breadth,” says Adams. “It sure feels like a down move in the market or it will occur soon.”
While markets have shrugged off geopolitical flareups in Ukraine, Gaza and to this point Iraq and Syria, it is unclear how long investors can ignore the growing threats from abroad.
Citi strategist Tina Fordham wondered aloud in a research note how long markets can shrug off geopolitical turmoil.
“In the short-term, we think investor indifference to geopolitical risks is largely justified,” Fordham told clients. “But given deteriorating security and political fundamentals, and the prospect of waning (Fed asset purchases), this is unlikely to last.”
Gold is an ideal insurance policy against political, economic and financial risk.
The world's biggest investors are clearly wary of a stock market top.
Billionaires are holding mountains of cash, offering the latest sign that the ultra-wealthy are nervous about putting more money into today's markets.
According to the new Billionaire Census from Wealth-X and UBS, the world's billionaires are holding an average of $600 million in cash each.
In today's increasingly frothy market environment, and after the hangover of 2009, today's billionaires prefer a return OF their assets rather than risking a return ON assets.
There is also mounting evidence we are in a tech bubble that rivals the tech bubble of 2000 when companies with no revenue were somehow valued at billions of dollars.
Several top Silicon Valley insiders are now hoisting the red flag saying enough is enough.
Bill Gurley, one of the most successful venture capitalists in the world, told the Wall Street Journal last week that “Silicon Valley as a whole . . . is taking on an excessive amount of risk right now. Unprecedented since ’99.”
Fred Wilson of Union Square Ventures echoed this sentiment on his blog, railing against the widely accepted model that it’s acceptable for companies to be “[b]urning cash. Losing money. Emphasis on the losing.”
George Zachary of Charles River Ventures wrote, “It reminds me of 2000, when investment capital was flooding into startups and flooded a lot of marginal companies. If 2000 was a bubble factor of 10, we are at an 8 to 9 in my opinion right now.”
There has been extensive speculation about interest rate hikes from the US Federal Reserve. That obviously would be wildly unpopular on Wall Street, but it would also be just as unpopular in Washington DC.
That's because a rate hike would immediately raise the cost of interest on the national debt.
As things stand now, the national debt totals $17.8 trillion. That's nearly $56,000 for every man, woman and child in this country. Forecasts indicate it will go higher.
The Fed's ultra-low interest rate policy has helped limit the pain for the ongoing budget deficit and growing national debt by limiting the damage from interest expenses. But with monetary policy on track to normalize, amid a strengthening in the economy and a tightening job market, the costs of carrying so much debt are about rise, attracting fresh attention to these divisive fiscal issues.
If the federal government based its forecast estimates on interest rate projections that prove to be too low, the effect on the budget outlook could be severe. More interest means more debt, which means more interest.
America will spend $233 billion on interest expenses in 2014. The federal interest expense could total an extra $650 billion over the next five years relative to current lower interest rate estimates. And the national debt will be nearly $700 billion higher than it would have otherwise been.
The takeaway from this is that the national debt/deficit problem remains unresolved and that alone is a big reason to be skeptical of any rally in the US dollar and to keep gold on hand over the long-term.
9.22.14 - More Economic Reports Point To Struggling U.S> Economy
Gold prices end flat on bargain hunting and a stronger U.S. dollar. U.S. stocks close sharply lower as investors worry over falling commodity prices and concerns about global growth. Gold last traded at $1,217 an ounce. Silver at $17.70 an ounce.
As we start another week, there are fresh economic reports that point to a US economy less strong than the Obama administration and the Fed have been claiming. In addition, a new technical factor in the stock market is pointing to trouble. To top it all off, geopolitical factors are beginning to emerge once again.
The US economy has bumped along the bottom for over six years now and it's taking a toll on a generation of wealth earners. Gen Xers (born between 1965 and 1980) are now less well off than their parents were at this point in their lives. They are on track to be the first in recent history to fall behind previous generations in terms of wealth accumulation, a key indicator of economic security.
One problem plaguing all ages in the US has been chronic unemployment. More than 20% of Americans laid off the past five years are still unemployed and one in four who found work found only a temporary job, according to a survey released by the Heldrich Center for Workforce Development at Rutgers University. Workers fortunate enough to land full-time jobs often take significant pay cuts. Forty-six percent of those who found jobs after being laid off said their new job pays less than their previous one. Nearly half of those out of work at least six months during the past five years estimate it will take three to 10 years to recover financially from the recession.
Every true economic recovery in the modern era has included a robust housing and real estate market. That's why many doubt the strength of the current economy. U.S. home resales unexpectedly fell in August as investors stepped away from the market. The National Association of Realtors reported today that existing home sales dropped 1.8 percent to an annual rate of 5.05 million units. Economists had forecast sales increasing to a 5.20 million-unit pace. Compared to August last year, sales were down 5.3 percent.
There is a new technical indicator that the stock market could be headed for trouble.
The Russell 2000 Index has been diverging from the broader market over the last several weeks, and now technicians point out it has flashed a bearish signal. For the first time in more than two years, the small-cap index has hit a so-called death cross.
A death cross occurs when a nearer-term, 50-day moving average falls below a longer-term, 200-day moving average. Technicians argue a death cross is a bearish sign.
Hitting a death cross could potentially propel the Russell 2000 lower and push the index closer to correction territory; a significant level watched by traders that is 10 percent below this index's all-time high.
The world is only now beginning to feel the fallout from the emergence of the terrorist organization ISIS in Iraq and Syria.
There has been a new and massive flow of refugees from areas that ISIS controls. The sudden, massive flood of refugees fleeing ISIS is unlike any other displacement in the 3.5 year Syrian conflict. As many as 200,000 people have left the area surrounding the Syrian Kurdish city of Kobani, also known as Ayn al-Arab, in just four days as ISIS advances into the area. Most have gone into Turkey. The number of Syrian refugees now in Turkey since the beginning of the conflict is approaching 1.6 million with no end in sight.
The conflict could be coming to the US as well, possibly creating a terrorist threat here. The White House confirmed this morning that some Americans who have fought alongside the ISIS terrorist group have returned to the United States. In some cases, the FBI has lost track of them.
As the United States begins what could be a lengthy military campaign against ISIS; intelligence and law enforcement officials said another Syrian group, led by a shadowy figure who was once among Osama bin Laden’s inner circle, posed a more direct threat to America and Europe.
American officials said that the group, called Khorasan, had emerged in the past year as the cell in Syria that may be the most intent on hitting the United States or its installations overseas with a terror attack.
The officials said the group is led by Muhsin al-Fadhli, a senior Qaeda operative who, according to the State Department, was so close to Bin Laden he was among a small group of people who knew about the September 11, 2001 attacks before they were launched.
There is almost no public information about the Khorasan group, which was described by several intelligence, law enforcement and military officials as being made up of Qaeda operatives from across the Middle East, South Asia and North Africa. Members of the cell are said to be particularly interested in devising terror plots using concealed explosives. It is unclear who, besides Mr. Fadhli, is part of the Khorasan group.
9.19.14 - Scotland Votes To Stay Part Of Great Britain
Gold prices end lower on a stronger U.S. dollar and positive jobs data. U.S. stocks end higher, Dow hits record high on positive economic news. Gold last traded at $1,216 an ounce. Silver at $17.78 an ounce.
Yesterday Scotland voted on whether or not to declare their independence from Great Britain. By a substantial margin, Scottish voters elected to stay part of Great Britain. Markets were heartened by this move, which essentially maintains the status quo. It should be pointed out, however, that this episode may spark secessionist movements in other parts of Europe, something that will definitely not cheer the markets going forward.
Gold has been declining recently due to dollar strength touched off by expectations of higher interest rates soon. In fact, gold is now at a low for the year.
As all investors should know, the key to successful investing is ultimately to buy low and sell high.
Right now, an opportunity exists to buy gold at a significant low and sell stocks at an all-time high.
There are some factors at work that need to be explained with regard to the dollar, interest rates and gold.
First of all, though the dollar has experienced some strength recently, it is very difficult to foresee a scenario in which the dollar has sustained strength. After all, the US national debt is over $17 trillion still and the current annual budget deficit is well over $500 billion. This is an unsustainable path. Sooner or later the US will have to service that debt with dollars cheapened by inflation. Over the long-term, this is like an anvil attached to the value of the dollar.
Second, many investors--and financial journalists--are too young to remember the late 70s and early 80s when gold experienced a huge bull market. Interest rates were rising and the prime rate hit the sky-high level of 21% at the same time the price of gold soared to a then-record level of over $800 per ounce. So, the narrative currently being floated around the financial world that rising interest rates are a death blow for gold does not stand up to historic, factual analysis.
Finally, one thing that HAS been true more often than not, is that rising interest rates are very bad news for the stock market. Many analysts, such as Marc Faber, are saying that rising interest rates will be the pin that bursts the current stock market bubble, touching off what could be the first major correction since 2011 or possibly even the first bear market in 6 years (which is overdue by historic norms). Given that gold has had a negative correlation with stocks over the long-term, a bear market in stocks touched off by rising interest rates could very well prompt investors to flock to the safety and security of gold.
Given these facts, it would appear gold at such low levels represents a terrific opportunity for investors.
9.16.14 - Investors Focused On Fed Policy Meeting
Gold prices end higher on safe haven demand. U.S. stocks end higher as Fed fears fade. Gold last traded at $1,236 an ounce. Silver at $18.66 an ounce.
All eyes on Wall Street are now cast on the Federal Reserve as it begins its two-day policy meeting and will culminate in Fed Chair Janet Yellen's briefing to the media Wednesday afternoon.
Investors are focused on what Fed policy will be going forward. Will the Fed raise interest rates? How much and how soon?
It's not even certain that Yellen will deliver an accurate representation of what was discussed in the meeting in her press conference.
One long-time stock market bull is warning today that the market could be in for a rough ride in the near-term. Jeremy Siegel believes the Fed is actually "a little behind the curve" on interest rates, with signs rates are already rising.
He's among the market watchers who believe the Fed will drop the phrase "considerable time" in its policy statement Wednesday when referring to how long the central bank will keep interest rates low. That has the potential to spook the market.
While the Fed tends to dominate the attention of Wall Street at times like this, there are other factors and issues investors need to be cognizant of as well.
America's chief executive officers are far from optimistic about the economic outlook near-term. Corporate executives are scaling back plans for sales, capital spending and job creation this quarter, according to a Business Roundtable (BRT) survey, consistent with other indicators that have tempered growth expectations.
The group's Economic Outlook Index—a snapshot of CEO expectations for the next six months of sales, capital spending and employment—fell to 86.4 from 95.4 in the second quarter of 2014. The majority of the BRT's members see plans for capital investment, hiring and revenues falling from the second quarter, with job plans declining the most.
This does not bode well for the US economic outlook, again illustrating that the underlying fundamentals of the US economy are not strong enough to justify a high-flying stock market.
Much of Europe's attention is focused on Scotland, which will hold a referendum Thursday on whether or not it will remain part of the United Kingdom. This is having financial fallout. As we reported yesterday, gold demand in Scotland is way up. There are also fears of a bank run, particularly via ATMs and British banks are stockpiling currency in Scottish ATMs in anticipation, something that might exacerbate already nervous depositors.
The news is brighter for the gold market.
China may join other emerging countries in boosting gold reserves as the precious metal makes up a smaller share of its foreign-exchange holdings compared with developed economies, reports the World Gold Council.
Meanwhile, Carter Worth, chief market technician at Sterne Agee, is telling clients that the dollar is about the turn down-potentially leading the gold price to stage a serious rebound: "We think the massive rally in the dollar is overdone, and you actually can catch a pop in gold."
9.11.14 - Swiss America Remembers 9/11
Gold prices end lower on a stronger U.S. dollar supported by expectations the Fed will begin raising interest rates. U.S. stocks end lower on weaker-than-expected jobless claims and concerns about interest rate hikes. Gold last traded at $1,239 an ounce. Silver at $18.53 an ounce.
As Americans pause today to remember those who lost their lives on September 11, 2001, the markets are casting a wary eye toward the Middle East in the wake of a speech by President Obama last night announcing he will be expanding military operations against ISIS.
The news comes amid heightened nerves over terrorism in the U.S. on this 13-year anniversary of 9/11. Recent surveys indicate Americans feel less safe and secure than at any time since 9/11/2001.
Another factor on the minds of traders is a worrying inflation report out of China that showed that wholesale deflation intensified there in August, clouding the outlook for an economy struggling to stage a convincing recovery. Inflation figures remain well below official Chinese government targets, which would be good news in most countries, but not in China, which is the engine of growth both on the demand and supply side for much of the world.
A slowdown in China has the potential to ripple across oceans and borders and this is a big concern for the financial markets.
The stock market in the US is especially vulnerable to a pullback at this point and professional investors appear to be preparing for an outright stock market crash. George Soros, Carl Icahn and a growing number of hedge fund managers all seem to be preparing for a major downturn.
The speculation that the Fed could remove the language about keeping rates low for a "considerable time" has been contributing to a rise in bond yield, as Treasurys sell off. Stock traders have been eying those moves though Fed watchers are divided on whether the language will be changed when the Fed releases its post meeting statement September 17.
Stock traders know it is Fed pumping, not underlying economic fundamentals, that are driving stock market gains. They fear what will transpire when that Fed pumping slows down or comes to an end.
9.9.14 - Gold Presents Major Buying Opportunity!
Gold prices closed lower on expectations that the Fed may tighten monetary policy sooner than expected. U.S. stocks edge lower, S&P suffers steepest one-day decline in five weeks while NASDAQ dropped most since July 31. Gold last traded at $1,248 an ounce. Silver at $18.84 an ounce.
A terrific buying opportunity is emerging in gold right now as its price nears a 3-month low due to recent strength in the US dollar.
There are 3 primary reasons why this is such a good buying opportunity:
1. The recent strength in the dollar is likely to be temporary as there has been nothing in recent monetary and fiscal policy to suggest the dollar's outlook will improve over the longer-term. The US national debt is still over $17 trillion and growing since deficit spending is forecast to continue indefinitely. And the US Federal Reserve is still instituting a loose monetary policy with negative real interest rates. Despite rumors that the Fed will tighten, there is still a debate within the Federal Reserve Open Market Committee on that score and Fed Chair Janet Yellen has expressed concern over recent economic reports, particularly employment reports.
2. The stock market is at record heights unjustified by underlying economic fundamentals. More and more experts are warning that the stock market could pull back at any time--perhaps severely. Because gold has historically had an inverse relationship to stocks, this eventuality will push gold prices higher.
3. September has traditionally been the best seasonal month for the price of gold. The month is still young. History suggests that gold will emerge from September in better shape than it entered September.
An additional factor likely to boost gold: India, one of the world's largest consumers of gold, is entering its festival season, which usually results in increased gold demand.
The bigger economic picture in the US is one which prompt investors to stay on guard. The economy is far from healthy and the American people know it.
Wary Americans remain in a defensive posture when it comes to their pocketbooks, and for good reason. A majority still have some serious financial issues, with only 22 percent confident the economy will improve.
The Federal Reserve's recently published Survey of Consumer Finances confirms that this pessimism is grounded in reality. For 90% of Americans, real incomes have actually fallen over the past three years.
Moreover, average hourly pay has crept up only 2 percent a year on average since the recession officially ended five years ago -- far below the gains in most economic recoveries.
Meanwhile, the economic stagnation does not mean that inflation is non-existent. Quite the contrary, milk prices have hit a record high, a development that will have a ripple effect in other food prices including everything from cheese and butter to pizza and pastries.
9.4.14 - Experts Preparing For Stock Market Plunge
Gold prices end lower on a stronger U.S. dollar. U.S. stocks fall as investors await jobs report. Gold last traded at $1,259 an ounce. Silver at $18.99 an ounce.
The stock market continues to reach new heights in defiance of economic and financial data alongside warnings from a variety of experts.
World stock bourses are climbing higher today on a surprise move by the European Central Bank (ECB) to cut interest rates from already record low levels. In addition, the ECB said that it would commence open market operations in the form of buying packages of bank loans in an effort to pump liquidity into the European economy.
All of this is well and good until fundamentals and reality catch up with the party.
Not everyone has confidence in the future of the stock market. In particular, some of the financial world's billionaire superstars are pulling out of stocks.
"The stock market is at an all-time, but economic activity is not at an all-time," explains billionaire investor Sam Zell to CNBC, adding that, "every company that's missed has missed on the revenue side, which is a reflection that there's a demand issue; and when you got a demand issue it's hard to imagine the stock market at an all-time high."
Zell also added: "I don't remember any time in my career where there have been as many wildcards floating out there that have the potential to be very significant and alter people's thinking."
Zell's forecast should not be shocking following warnings from fellow billionaire investors George Soros, Stan Druckenmiller, and Carl Icahn that there is trouble ahead.
As gauged by the weekly Investors Intelligence report, bearishness among market newsletter writers has also fallen to 13.3 percent, a level it has not seen since 1987 as the market continues to set new highs despite a seemingly endless call for a long-overdue correction.
The last time investors had this little fear about stocks was 1987, the year of the biggest market crash in history. On the infamous Black Monday, Oct. 19 1987, the Dow Industrial plunged more than 22 percent.
9.2.14 - Keys News Articles Paint Positive Picture For Gold
Gold prices lower on a stronger U.S. dollar and lower oil prices. U.S. stocks end lower despite data showing U.S. manufacturing expanded at the fastest pace in three years. Gold last traded at $1,266 an ounce. Silver at $19.11 an ounce.
On the first US trading day of September there are several key news articles painting a positive picture for gold. September is traditionally a positive month for gold.
The biggest news has actually garnered very little attention--but it should!
As we have mentioned frequently in recent months, Russia, along with China, has been moving to displace the US dollar as the world's primary medium of exchange. Those efforts appear to be seriously escalating.
There are reports that Saudi Arabia--OPEC's largest oil exporter--is close to allowing the sale of oil and natural gas to be done in both Roubles and Yuan, bypassing the US dollar.
This has serious negative implications for the value of the dollar, which should result in an increase in the price of gold in dollar terms.
Meanwhile, there are signs that Indian gold demand is continuing its rebound over 2013 levels. The United Arab Emirates (specifically Dubai), which has historically been the primary trading post between East and West, reports that total gold demand in the UAE reached 25.4 tons in the first quarter of 2014. The 16% increase from Q1 in 2013, was largely driven by Indian tourists choosing to buy gold in the UAE. That is very bullish news since India has historically been the largest importer of gold in the world, only having been surpassed by China last year.
Gold demand is surging in China as well. The value of precious metals held by China’s largest lenders has surged 66% from a year ago as banks lease more gold. The lenders’ holdings were the equivalent of about 1,445 metric tons of gold, based on June 30 prices, up 55 percent from the year before. That’s more than the 1,054 tons that China’s central bank has in reserves, according to World Gold Council data.
Global economic news also seems supportive of higher gold prices going forward due to economic uncertainty.
There has been a sudden, and quite dramatic, collapse in global manufacturing as tracked by various Purchasing Managers Indices.
Out of the 26 countries that have reported so far, nine reported improvements in their manufacturing sectors in August, while 15 recorded a weakening, and two remained unchanged.
The biggest concern: virtually every core and peripheral Eurozone country of note (from France and Germany to Spain and Italy) saw substantial contraction.
Finally, as we mentioned above, September has traditionally been a positive month for gold. The same cannot be said for stocks. With the stock market already being overdue for a pullback, this should be a concern for investors.
Stocks have, on average, swooned in September, wiping out gains in the last 20, 50 and 100 years. Will history repeat itself this September?
Big institutional investors such as Blackstone and Wells Capital Management have raised concerns that this summer rally could grind to a halt.